What Is Gross Profit Margin?
Gross profit margin is a profitability ratio that shows what percentage of revenue is left after paying the direct costs of producing or buying the goods you sell (the cost of goods sold, or COGS). It is one of the most important indicators of how efficiently a business turns sales into profit before overhead, taxes, and interest. A higher margin means more money is available to cover operating expenses and generate net profit.
How to Use This Calculator
Enter your total Revenue (net sales) and your Cost of Goods Sold for the same period. The calculator returns your gross profit margin as a percentage, the dollar amount of gross profit, and the markup on cost. Use figures from the same period (a month, quarter, or year) for an accurate result.
The Formula Explained
The margin is calculated as: $$\text{GPM\%} = \frac{\text{Revenue} - \text{COGS}}{\text{Revenue}} \times 100$$ The numerator (\(\text{Revenue} - \text{COGS}\)) is your gross profit. Dividing by revenue and multiplying by 100 expresses that profit as a share of every sales dollar. Note that margin (relative to revenue) differs from markup (relative to cost) — the same gross profit produces a higher markup percentage than margin percentage.
Worked Example
Suppose a shop has revenue of $10,000 and COGS of $6,000. Gross profit is $$\$10{,}000 - \$6{,}000 = \$4{,}000$$ The gross profit margin is $$\frac{\$4{,}000}{\$10{,}000} \times 100 = 40\%$$ The markup on cost is $$\frac{\$4{,}000}{\$6{,}000} \times 100 \approx 66.67\%$$
FAQ
What's a good gross profit margin? It varies widely by industry — retail can run 20–40%, while software can exceed 70%. Compare against competitors in your sector.
Is gross profit margin the same as net margin? No. Gross margin only subtracts COGS. Net margin subtracts all expenses, including overhead, taxes, and interest.
Why is margin lower than markup? Margin divides profit by revenue (a larger number) while markup divides the same profit by cost (a smaller number), so markup is always the higher figure.
